Dell’s AI business is booming, but shares plunged after it cut its revenue outlook

• Dell reported $24.4 billion in revenue for its third quarter — a 10% year-on-year increase.
• Revenues jumped 34% in Dell’s ISG division, which includes the company’s AI operations.
• But a lower-than-expected fourth quarter outlook drove Dell’s shares down 12% in premarket trading.

Dell reported third-quarter earnings on Tuesday that showed promising growth for its AI business, but forecast lower overall revenues than expected for the end of the year.

The company’s third-quarter revenue rose 10% year over year to $24.4 billion but came in slightly under the $24.67 billion expected by analysts.

Earnings per share were up from $2.06 to $2.15.

The biggest success story came from Dell’s Infrastructure Solutions Group, which includes sales of AI servers, storage, and other network capabilities.

ISG revenues reached a record-high $11.4 billion during the quarter, marking a 34% year-on-year increase. Within the division, server and networking revenue jumped 58% year over year to reach $7.4 billion.

“AI is a robust opportunity for us with no signs of slowing down,” said Jeff Clarke, Dell’s vice chairman and chief operating officer, in a press release.

“Interest in our portfolio is at an all-time high, driving record AI server orders demand of $3.6 billion in Q3 and a pipeline that grew more than 50%, with growth across all customer types.”

Despite Dell’s strong positioning in AI-related technologies, the company’s shares were down as much as 12% in premarket trading after its final quarter revenue outlook fell below Wall Street expectations.

Analysts had forecast an outlook of $25.5 billion, but Dell put its fourth-quarter revenue expectations between $24 billion and $25 billion.

Results from Dell’s client solutions group division also dampened the tech company’s results.

CSG revenue, which includes computer and PC sales to consumers and enterprises, declined by 1% year over year, bringing in $12.1 billion in revenue. Commercial client revenue grew by 3%, but the consumer side of CSG fell 18% year over year in the third quarter.

Dell shares have risen 86% in 2024 as the Texas-based computer maker positions itself as a leading provider of the tools and servers used by AI developers.

The company has put AI at the forefront of its growth strategy and has partnered with Nvidia to build an AI factory for Elon Musk’s xAI.

Dell shipped $2.9 billion in AI servers during the quarter, and the company said that customers had booked $3.6 billion of future AI server orders.